Stablecoins like Tether (USDT/USD) and Circle Internet Financial’s USD Coin (USDC/USD) could see bank-like regulations imposed from US President Joe Biden and his administration, sources told The Wall Street Journal. Specifically, stablecoin operators could be forced to register themselves as a bank.
Ease financial panic
Sources close to the matter told WSJ the White House is taking steps to ease concerns that stablecoins could result in a financial panic. Stablecoins refer to digital currencies that are backed by safe assets yet are based on blockchain technology.
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The logic behind new regulation is based on the notion that stablecoins could create financial instability if its user base doubt the value of the underlying assets. Securities and Exchange Commission Chairman Gary Gensler already made his views on stablecoins clear. He said in late September:
We’ve got a lot of casinos here in the Wild West, and the poker chip is these stablecoins at the casino gaming tables.
Regulating stablecoins has some support across both sides of the aisle. Congresswoman Cynthia Lummis (R., Wyo.) said in a speech this week that stablecoins should be regulated. She said:
It may be the case that stablecoins should only be issued by depository institutions.
What’s next for stablecoins?
Biden is likely to task Congress with coming up with a new legislation to create a special-purpose charter. This would tailor any new regulations to stablecoin operators’ business models.
Also, the US Treasury is forming a group to evaluate if stablecoin activities are considered systemically important. The findings will be delivered to the Financial Stability Oversight Council.
The report could be released in a few weeks when the President’s Working Group on Financial Markets is released in late October, according to WSJ’s sources. It remains unclear how any recommendations could be enforced.
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